What is Murabaha ?Muarabaha • Murabaha is a particular kind of sale and not a financing in its origin. • Since Murabaha is a sale transaction, rules of Shariah regarding sale should be understood.• Where the transaction is done on a “cost plus profit” Basis i.e. the seller discloses the cost to the buyer and adds a certain profit to it to arrive at the final selling price.• The distinguishing feature of Murabaha from ordinary sale is: - The seller discloses the cost to the buyer. - And a known profit is added.Payment Process Of Murabaha • Payment of Murabaha price may be :1) At spot2) In installments3) In lump sum after a certain time• Hence, Murabaha does not necessarily imply the concept of deferred paymentMurabaha as a Mode Of Financing Basic rules for Murabaha financing• Asset to be sold must exist.• Sale price should be determined.• Sale must be unconditional.• Assets to be sold: a) Should not be used for un-Islamic purpose. b) Should be in ownership of the seller at the time of sale; physical or constructive.• Re-negotiation of price and roll over of Murabaha Are not permitted.• Discounting of Murabaha instrument is not permitted.Step by step Murabaha financing1. Client and bank sign an agreement to enter Into Murabaha (MMFA). 2. Client appointed as agent to purchase goods on bank’s behalf3. Bank gives money to agent/supplier for purchase of goods4. The agent takes possession of goods on bank’s behalf.5 (a). Client makes an offer to purchase the goods from bank through a declaration5(b). Bank accepts the offer and sale is concluded6. Client pays agreed price to bank according to an agreed schedule. Usually on a deferred payment basis (Bai Muajjal) Murabaha Based Product Of Meezan Bank One of the most common modes of finance employed by Islamic Banks, Murabaha is based on the exact requirements of each customer. It can be defined as a sales transaction where Meezan Bank purchases the commodity and sells it after adding an agreed profit. Thus, it is not a loan given on interest - it Is sale of a commodity on a deferred price.Murabaha involves the purchase of a commodity by Meezan Bank on behalf of a customer and subsequent sale to the customer on cost-plus-profit basis. The cost and profit margin to the bank is expressly disclosed to the customerSimply put, rather than advancing money to the customer, Meezan Bank buys the commodity from a third party and sells it to the customer at an agreed price, which includes an element of profit.Meezan bank uses Murabaha for 1-Short term financing (corporate/SME) 2- Islamic Export Refinance scheme